The market reacted to Fed Chair Powell’s comments about interest rate cuts, initially dipping but quickly rebounding due to aggressive buying, likely fueled by quarter-end window dressing. Despite the Fed’s planned rate cuts, momentum investors continue to anticipate more aggressive cuts.
Two key pieces of data will be released today: JOLTS job openings at 10am ET and the ISM Manufacturing index, also at 10am ET. These releases may significantly impact market sentiment. The most crucial economic data this week is the jobs report, set to be released at 8:30am ET on Friday.
Expect increased stock market activity today and tomorrow driven by the so-called ‘blind money’ – uninformed funds entering the market on the first two days of the month.
In notable news, FedEx Corp (FDX) is benefiting from the East Coast port workers’ strike. The Arora Report, which uses over 50 strategies, recently added FDX to its portfolio, leveraging the dip in earnings.
Prudent investors should take note of Michael Dell’s recent sale of $1.22 billion in Dell Technologies Inc (DELL) shares, capitalizing on the stock’s rise driven by the AI frenzy. The momo crowd, oblivious to this trend, continues to buy DELL. It’s important to recognize the pattern of insider selling in AI stocks that have experienced significant gains.
Japan’s new prime minister’s focus on tighter fiscal and monetary policies is expected to benefit the Japanese yen. While this is positive for the yen, it also raises concerns about the carry trade, where funds borrow yen to invest in U.S. stocks, especially AI stocks.
Money flows in the early trade show positive momentum for Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), NVIDIA Corp (NVDA), and Tesla Inc (TSLA). Conversely, Apple Inc (AAPL), Amazon.com, Inc (AMZN), and Microsoft Corp (MSFT) are experiencing negative money flows. (SPY) and Invesco QQQ Trust Series 1 (QQQ) exhibit mixed flows.
Investors can gain an edge by tracking money flows in SPY and QQQ. For a greater advantage, investors can identify when smart money is buying stocks, gold, and oil. The most popular ETFs for gold, silver, and oil are SPDR Gold Trust (GLD), iShares Silver Trust (SLV), and United States Oil ETF (USO), respectively.
Bitcoin (BTC/USD) currently trades within a range.
Looking ahead, investors should focus on their existing long-term positions. Consider establishing a protection band with cash or Treasury bills, or short-term tactical trades, along with short to medium term and short-term hedges. This approach allows for both protection and potential upside participation.
The protection band’s range – high or low – should correspond to your individual risk tolerance. For those with a higher risk tolerance, a lower band is appropriate, while a higher band suits those who are more conservative.
Remember, maintaining a sufficient cash reserve allows you to take advantage of new opportunities.
Adjust hedge levels by considering partial stop quantities for individual stock positions (non-ETF), implementing wider stops for remaining positions, and providing more leeway for high beta stocks.
Traditional 60/40 portfolio probability does not currently favor long-duration strategic bond allocation. Those sticking to the traditional 60/40 approach might focus on high-quality bonds with a duration of five years or less. For a more sophisticated approach, consider utilizing bond ETFs tactically instead of strategically.
The Arora Report is known for its accurate market calls, including the artificial intelligence rally, the 2023 bull market, the 2022 bear market, and the 2020 virus drop.
